There is some concern throughout the country about the extent to which low- to moderate-income workers are relying on paid tax preparers to file their tax returns. In practically every strip shopping center there is a storefront return preparer. Many low-income taxpayers find themselves using the services of a paid return preparer because they wish to receive the earned income tax credit (EITC). The number of EITC recipients who use paid return preparers has been steadily increasing in recent years (Berube, “The New Safety Net,” Brookings Institution, February 2006). The complexity of computing the EITC, combined with language, literacy, and education barriers, leads many low-income taxpayers to the storefront return preparer (O’Connor, “Tax Preparation Services for Low Income Filers,” 90 Tax Notes (January 8, 2001): 231).
In addition, many other low-income taxpayers who are entitled to refunds do not file a return at all because they do not understand the various credits and deductions they may be entitled to take.
Paid return preparers catering to low-income taxpayers often charge high fees and push ancillary products, such as refund anticipation loans (RALs), that are not advantageous to low- to moderate-income workers. The costs of RALs have been characterized as “outrageous . . . [RALs] take advantage of people desperate for money” (Sen. Gordon Smith (R-OR), press release, April 21, 2005).
While a recent IRS news release emphasized the increased use of the online Free File program by individuals (IR-2008-047), many of the clients served by storefront preparers lack the computer literacy (and the computer) needed to use the Free File software. These individuals require one-on-one personal interaction to help elicit all pertinent information to meet their filing obligations and answer their questions.
Another challenge this filing season was for people with no tax filing requirement for 2007 who wished to receive their economic stimulus payments. These individuals required additional personal assistance to ensure that they understood the eligibility requirements for the stimulus payment and that they must file a tax return.
One way to improve the situation of these low- to moderate-income taxpayers is through the use of volunteers trained to assist in tax preparation services. For those wanting to volunteer, it can be a challenge to identify an engagement that best uses their skills and available time. This year the author decided to volunteer his professional services to the community and, because his principal interest was in the area of taxation, chose to join the IRS Volunteer Income Tax Assistance (VITA) program, which is directed to low- to moderate-income individuals and can help them avoid using paid return preparers.
VITA is a national program that provides free return preparation assistance to individuals with low to moderate incomes and those who are elderly and/or disabled or have limited English proficiency. VITA is designed to provide these taxpayers with access to competent and ethical return preparation services. It offers an alternative to paid return preparation, yet provides one-on-one personal attention for the taxpayer.
While the IRS produces the VITA materials and administers VITA training, it does not run the VITA return preparation sites. The VITA effort is provided through nonprofit and other community organizations. A parallel program, Low Income Taxpayer Clinics, represents low-income taxpayers before the IRS with audits, appeals, and collection matters. The organizations sponsoring the clinics are either nonprofits or academic institutions. While the services covered are those embraced by a general tax practice, there is an apparent lack of CPA and accounting participation and instead an emphasis on the legal profession.
Despite the invaluable service that VITA provides, most VITA programs have trouble attracting qualified CPAs. One problem, of course, is that VITA sites operate during tax season, the busiest time of the year for most CPAs.
Another issue that may dissuade CPAs from volunteering with VITA is a fear of liability for errors or omissions in the returns they prepare. The article “Don’t Volunteer for Trouble,” by Joan Sompayrac, discusses all aspects of being a volunteer, with a special note that “bad things can happen to good volunteers” (Journal of Accountancy, January 2003). The article highlights the key provisions of the Volunteer Protection Act of 1997 (VPA). This federal statute exempts volunteer workers of nonprofit organizations and government entities from liability for harm caused by the volunteer’s actions or omissions if:
- Volunteers act within the scope of their responsibilities;
- Volunteers are properly licensed;
- Any harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or conscious, flagrant indifference to the rights or safety of the injured party; and
- The harm was not caused by an unpaid worker operating motorized equipment.
The article provides a more complete discussion of the VPA and those situations in which the volunteer is not protected.
An additional liability concern that CPAs might have is whether they are required to use their preparer taxpayer identification number. The answer is no. Tax returns are prepared using a VITA site identification number, and volunteers are covered by the Volunteer Protection Act.
How good is VITA? The author found the VITA program to be well developed, from the training, problems, and practice exercises through the testing phase. Volunteers had to demonstrate a working knowledge before they could participate in the community outreach program. In the author’s volunteer cluster, the participants generally completed the basic course. He completed all phases because he was participating in VITA and tax counseling for the elderly (TCE) as well as quality review. Tax return preparation was subject to a quality review process to ensure filing accuracy.
Volunteers must successfully complete the IRS “Link & Learn” online training and pass a test on required tax law knowledge applicable to the level required. They are also required to complete TaxWise software training. Volunteers were given the Volunteer Resource Guide (Publication 4012), which covers topics at basic and intermediate levels, TaxWise software, and the process of conducting interviews using an intake and interview sheet. The following additional materials can be found on www.irs.gov:
- Publication 678, Volunteer Student Guide;
- Publication 678-W, VITA/TCE Work book: Comprehensive Problems and Practice Exercises; and
- Form 6744, VITA/TCE Volunteer Test/Retest.
Any CPA who wants to volunteer with VITA/TCE should take the training rather than skipping to the testing phase to demonstrate competency. This will allow CPAs to better understand requests for assistance and to provide guidance to the nonaccountant volunteers. The training also highlights the IRS emphasis areas.
It is important that CPAs provide their expertise to ensure that VITA provides the level of required service and quality of return preparation. The author helped low- to moderate-income individuals with returns that were beyond their ability to prepare and that would also have been beyond the general volunteer skill set at his location. The volunteer commitment is a minimum of nine four-hour volunteer shifts during the filing season. This endeavor could be a time challenge for CPAs with an active tax return preparation practice. However, it would seem to be a reasonable investment on behalf of our profession.
John L. Miller is a Faculty Instructor for Metropolitan Community College in Omaha, NE
Mr. Miller is a member of the AICPA Tax Division’s IRS Practice and Procedures Committee as well Faculty Instructor for Metropolitan Community College in Omaha, NE.
Mr. Weiss is also a member of that committee.
For further information about this column, contact Mr. Miller at firstname.lastname@example.org.